Asian Outlook 11308
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ASIAN OUTLOOK 11/3/08 Can it decouple? no chance, at least not yet... over past few years , Asia has mirrored the moves in the US at each turn...
it clearly , despite all the talk of a de-coupling , hasn't yet...
RISK PREMIA............ below are the CDS indices for Asia[ red] , USA [white ] and EU [ yellow ] although they may at different levels in terms of cost of insuring one against default risk, their direction seems pretty well correlated.... at least , so far... no decoupling signs here either...
are Asian analysts still too bullish....? seems odd that their SALES growth estimates for '08 are even faster than the global glory years of '06 and '07 when the world was firing on all cyclinders. i.e.... from the below table it seems that analysts are est 16% Sales growth for Asia , versus 14.2% in '06 and 11.5% in '07!!
so , apparently '08 will be the best year
for sales in any year from '06 to '09 !!
MARGINS... at least they are going for a decline in NM [ from 11.7 to 11% ] .... but no decline in operating margins [ 14.3% for both '07 and '08.....] like the sales growth estimates, these would appear still a tad optimistic? input costs appear to be rising across most sectors.... and demand from OECD countries would appear to be tapering off [ as consumers need to rebuild their savings and consume less ] which would suggest that Asian exporters are not likely to have much pricing power, such that they can maintain operating margins? there should also be slower demand for high priced ticket items , like property in China and Sing... i.e domestic sales should slow as well as export sales... higher food and energy prices ,esp from the slower sales in the lower priced goods?
poorer countries should also witness
NET PROFITS.... overall , estimates are for 7.7% rise in profits.... with negative numbers in HK SING NZ...
Profits by sector.... apparently, analysts are most bullish about Consumer DURABLES with an estimated 36.7% gain in profits , and that is On TOP of an '07 growth of 52.6%... am surprised by this expectation of Asian consumers or global ones buying high priced items in this environment? next strongest growth is 27% for Tech Hardware , after 93.6% growth in '07...??
if you cant read these tables , do ask for the original report..
VALUATIONS.... p/b.... on
2.3x '07 ...
and P/S are est to be 1.6x in '07...
but casting your eyes down the list of the top market cap co's we cant see that many co's have numbers close to the above table..[.2.3x p/b and 1.6x p/s ] i.e ASIA is still not 'too cheap to decouple'... we are nowhere near trough valuations and in fact ,are still on the expensive side.
PER's...... should fall as inflation rises..... this explanation taken from that well known piece in the International Research Journal of Finance and Economics...!
an old rule of thumb in determining the 'correct ' PER is to take the inflation rate away from 20x per... Chinese Inflation rate just came out
at a multi year high of 8.7%...
which would imply a PER of about 12x to 13x....!!
well , the CSI 300 Index offers an historic PER of 38x...
and a forward per of 24x....!
CONCLUSION.... Asia can said to be oversold in the short term... but 1/ analysts look to be still too optimistic on sales growth and margins.. 2/ PER's should be falling .. from higher Risk premiums, lower growth prospects and higher Inflation.... Asia needs a normal 12 month correction after a Four Year Bull Cycle...[ '03 to '07] once expectations have been lowered and valuations are back to reasonable levels , she will be set to go again.. She remains a fine place to be for the long haul and certainly better than the leveraged West..
it clearly , despite all the talk of a de-coupling , hasn't yet...
RISK PREMIA............ below are the CDS indices for Asia[ red] , USA [white ] and EU [ yellow ] although they may at different levels in terms of cost of insuring one against default risk, their direction seems pretty well correlated.... at least , so far... no decoupling signs here either...
are Asian analysts still too bullish....? seems odd that their SALES growth estimates for '08 are even faster than the global glory years of '06 and '07 when the world was firing on all cyclinders. i.e.... from the below table it seems that analysts are est 16% Sales growth for Asia , versus 14.2% in '06 and 11.5% in '07!!
so , apparently '08 will be the best year
for sales in any year from '06 to '09 !!
MARGINS... at least they are going for a decline in NM [ from 11.7 to 11% ] .... but no decline in operating margins [ 14.3% for both '07 and '08.....] like the sales growth estimates, these would appear still a tad optimistic? input costs appear to be rising across most sectors.... and demand from OECD countries would appear to be tapering off [ as consumers need to rebuild their savings and consume less ] which would suggest that Asian exporters are not likely to have much pricing power, such that they can maintain operating margins? there should also be slower demand for high priced ticket items , like property in China and Sing... i.e domestic sales should slow as well as export sales... higher food and energy prices ,esp from the slower sales in the lower priced goods?
poorer countries should also witness
NET PROFITS.... overall , estimates are for 7.7% rise in profits.... with negative numbers in HK SING NZ...
Profits by sector.... apparently, analysts are most bullish about Consumer DURABLES with an estimated 36.7% gain in profits , and that is On TOP of an '07 growth of 52.6%... am surprised by this expectation of Asian consumers or global ones buying high priced items in this environment? next strongest growth is 27% for Tech Hardware , after 93.6% growth in '07...??
if you cant read these tables , do ask for the original report..
VALUATIONS.... p/b.... on
2.3x '07 ...
and P/S are est to be 1.6x in '07...
but casting your eyes down the list of the top market cap co's we cant see that many co's have numbers close to the above table..[.2.3x p/b and 1.6x p/s ] i.e ASIA is still not 'too cheap to decouple'... we are nowhere near trough valuations and in fact ,are still on the expensive side.
PER's...... should fall as inflation rises..... this explanation taken from that well known piece in the International Research Journal of Finance and Economics...!
an old rule of thumb in determining the 'correct ' PER is to take the inflation rate away from 20x per... Chinese Inflation rate just came out
at a multi year high of 8.7%...
which would imply a PER of about 12x to 13x....!!
well , the CSI 300 Index offers an historic PER of 38x...
and a forward per of 24x....!
CONCLUSION.... Asia can said to be oversold in the short term... but 1/ analysts look to be still too optimistic on sales growth and margins.. 2/ PER's should be falling .. from higher Risk premiums, lower growth prospects and higher Inflation.... Asia needs a normal 12 month correction after a Four Year Bull Cycle...[ '03 to '07] once expectations have been lowered and valuations are back to reasonable levels , she will be set to go again.. She remains a fine place to be for the long haul and certainly better than the leveraged West..
